GST Withholding for Developers

New GST Withholding Regime on New Residential Property Transactions

On the 9th of May 2017 the Federal Government announced that it will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or new subdivisions to remit the GST directly to the ATO as part of settlement.

Under the current law whereby the GST is included in the purchase price and the developer remits the GST to the ATO, some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. As most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes.

The amount of GST to be withheld and paid to the ATO is 1/11th of the contract price or 7% of the contract price, if the GST margin scheme applies. The purchaser must remit the GST withholding amount to the ATO on or before settlement day.

Please note there are transitional provisions in place such that the new provisions will not apply to a contract which is entered into prior to 1 July 2018 for which consideration (other than the deposit) is first provided before 1 July 2020.

Please note the Bill containing this new provision was introduced into Parliament on 7 February 2018 but has not yet received royal assent.